SBA Loans

Hello and welcome to this module, SBA loan. So at this point, if you’re considering an SBA loan or you’re about to apply for an SBA loan, you’ve already done everything you’ve needed to do to make sure your personal credit is good. Your corporate credit is good. You have a Paydex score, an Experian score, possibly an Equifax score, and you also have a small business FICO score as well. So let’s go ahead and hop into the characteristics of SBA loans and really what you can do to take advantage of these. So here’s what we’re going to cover. So the first thing is what is an SBA loan? So you’re clear on that, how the SBA loans work what the SBA loan guarantee is and how that comes into account with SBA loans and then SBA loans versus traditional business loans, the pros and cons of SBA loans.

And then lastly, what can an SBA loan be used for? And one other thing, types of SBA loans. So this is going to be a jam-packed module, and then I’m going to provide resources that you can take advantage of when it comes to SBA loans. So what is an SBA loan? Well, an SBA loan by definition is a type of financing that is offered through lenders and partially guaranteed by the small business administration, SBA in case of borrower default. SBA loans can take a while to get, but they’re among the most accessible and affordable forms of financing for entrepreneurs or small business, small to mid-sized businesses, right. Now, SBA programs make up the government is one of the closest allies. And by partnering with lenders, including banks, community development, organizations, credit unions, and alternative online lenders, the SBA loan, the SBA makes it much easier for small business owners to obtain loans.

And these, when I say loans, this is what we call business funding, getting an infusion of cash on the front end, as opposed to the corporate credit and the business credit. Now an SBA loan is for small, a small business loan that is partially guaranteed by the government, small business administration, which eliminates some of the risks of the financial institution who is issuing the loan. So the small business administration as a federal agency committed into further in the growth of development of small businesses and partners with lenders nationwide in their loan program. So this is why banks they’ll underwrite the loan, but it’ll be guaranteed by the SBA. So this is a really, really powerful thing, but the loan requirements are a little bit more stringent, but that’s why it’s your personal credit and your business credit has to be on par in order to qualify for one of these.

So SBA loans work by reducing the risk lenders face by loaning funds to small business owners, and then lenders collaborate with small business administration or SBA to secure each loan. So just like you’re securing the cash with a secured card, essentially the SBA is saying, Hey, look, we’re going to secure the loan based off our relationship with the federal government. Now, the SBA does this by providing a guarantee to the lenders, the money they lent, they will be paid back. So that way, when I say they will be paid back, the loaning institution will be paid by the SBA. Should you default? Now this is why these loans are so attractive. Now, SBA loans work by reducing the risk lenders face by loaning funds to small business owners. And then lenders collaborate with the SBA to secure the loan. And then the SBA does this by providing a guarantee to lenders in the money paid back. So the SBA guarantees a certain percentage of each loan. And then typically the percentage of the guarantee is going to vary depending upon the type of loan. For example, the SBA will guarantee 50% of SBA express loans and 75% or 85% of SBA 7(a) loans depending upon the loan amount and the type of loan in the industry and all that good stuff. Now, when you look at SBA loans versus traditional business loans, traditional business loans there’s no benefit of SBA guaranteed. So the requirements are going to be much higher for a typical loan that’s not guaranteed by the government or the SBA. So that’s why when you go to your bank and ask for a traditional loan, they put you through the ringer.

It’s much more difficult to qualify and because conventional banks loans aren’t secured by the SBA loan amounts are typically lower than it’s available through the SBA, meaning less financing available to both of your business or use it for working capital. Because again, the bank itself is taken on all the risk versus SBA loans. They’re more flexible with their limits. The interest rates are extremely competitive and monthly payments are a lot longer and more affordable than a traditional bank. SBA loans are government guaranteed, which makes it very, very attractive for small business. Because again, the backbone of the United States economy is small business. So when you look at the SBA loans versus traditional loans, this is just like a metric here to show you. You can see an SBA loan can range anywhere between 50,000, all the way up to 5 million.

The interest rates are typically going to be anywhere between six to 13%. And the payment terms are really, really competitive because they’re going to be anywhere between five years up to 25 years with the payback terms. And then the turnaround time typically is 30 days to six months to pick up on what you need to do in order to get qualified for that SBA loan. And like I was saying before, it’s going to require a FICO SBSS score of usually about one 60 out of 300. And typically if you’re not at that 155, 160 range, we want to be making the proper steps or taking the proper steps to make sure our FICO SBSS score is where it is and between personal and business credit. You have all the resources knowing how to do that. But I would be led to believe if you’re considering an SBA loan, you already have stellar personal credit, and you’ve built up your corporate credit file because you would have followed all the steps in order to do so.

Versus traditional bank loans, typically, it’s going to be $250,000. 5% to 10% is going to be their interest rate. You’re going to have a shorter timeframe in terms of repayment, typically one to 20 years. And they generally take two to four months to fund. And then it’s usually going to require excellent business credit and personal credit scores because they will absolutely come after you personally, if you default on the loan, because they’re not being backed by the small business administration. Now, when we look at the types of SBA loans, as we wrap this up, there are several different types. You have SBA 7(a) loans and under the 7(a) loan categories, you have standard 7(a) loans. Then you have SBA express loans. You have SBA lines of credit or CAPlines. And then you have CDC/504 loans under this category.

And then you’re going to also have SBA microloans. So these are like the traditional SBA type of loans. And then when you look at the different types of SBA loans, starting with the 7(a), those SBA 7(a) loans can go up to $5 million. Typically the interest rates going to be prime plus a maximum of 4.7, 5% of the lender interest rate. And the terms typically would be seven to 25 years. And it takes about 60 to 90 days to be funded. SBA express loans, since the name, up to $350,000, five to 10 year payback periods, and seven to 60 days to get those funded SBA caplines up to 5 million. Again, you’re gonna have that prime plus a maximum of 4.7, 5% of the lender interest rate. And it’s not to exceed 10 years or five years for cap builder line.

So essentially those lines of credit, if you get that one, that’s just what I’ve noticed with lines of credit. Typically you can use that line of credit for five years and then they’ll reevaluate it. And then if if you still have a balance on that line of credit, it’s going to turn into a term loan, which means you’re gonna have monthly payments until you pay the balance off. SBA CDC/504 loans, the loan amount is unlimited. So, and then because it’s unlimited loan the interest rates negotiable with the third party lender. And typically you’re going to have a five or 10 year treasury yield at 0.38% to 0.48% basis points or 0.38 basis points. So that’s essentially that of a percentage. And then the loan terms is going to be 10 and 20 years.

And it typically takes anywhere between two to six months or 60 or 180 days to fund those and those micro loans up to 50,000 interest rates and a little bit higher than that because it’s a smaller loan amount. And typically those interest rates are going to be eight to 13%, six-year term and in 30 to 60 days to fund those. So those are really quick to get funded. So these are the types of SBA loans in it. And then I have some more resources below this that goes into more detail. Again, you want to make sure your personal credit is good. Your business credit is good. And then you can go right here below this actual video. And let me make sure I’ve got it pulled up here. If you click on these links, you’ll notice that there’s several resources. The first resource is just like funding programs available and they have a lender match. I have SBA funding progress for 7(a) loans, SBA 7(a) loans complete guide to your terms and interest rates, SBA funding loans for 504 loans and then 504 loans, a little bit more for real estate development, SBA loans for microloans. And then there’s some additional information on a conference. So basically there’s information on the loan itself and a little bit more comprehensive information. So if you were to click on this SBA loan lender match, what this is going to do is pull this up and it will allow you to kind of start finding lenders who will be a potential match for you on the SBA website. So you would just go through the process of putting your information and then it would start matching you with an efficient process for SBA loans. They also have a learning center that goes in much more detail regarding the SBA platform and really what to be looking for when it comes to getting an SBA loan.

My recommendation is just dealing directly with the SBA and getting all the information on the front end ahead of time, and then identifying a good lender for that particular loan that you’re looking for. And again, these are going to be those long-term loans, right? That we’re looking to fund. If you were to want to get additional information on just like the 7(a) loans in more detail, here’s another link specifically, that’s covering the types of 7(a) loans, and here’s some other information about am I eligible? You know, do you operate for profit, be considered a small business as defined by the SBA, be engaged or proposed and engage in a business the United States or its possessions have reasonable invested equity, which means have you, are you invested in a business. Use alternative financial resources, including personal assets before seeking financial assistance, be able to demonstrate the need for a loan, use the funds for a sound business purpose, and not being delinquent on any other SBA, on any existing debt obligations to United States government.

So, and this goes more in detail about it. So when you can see the interest rates, what their guarantees are. So again, this is a huge resource. If you are looking for like actual business funding is going through this and really positioning your credit file, your business, your financials, all that stuff, to be able to not only get the SBA loan, because they’re going to see profit and loss statements. Like I want to see financials, they’re going to see your personal assets, all that stuff, because it’s going to take into account your consideration, then you move forward. All right. But again, this is working capital and I’ve already talked about the importance of making sure when you’re getting money from the bank, you’re using this money to really scale your business. So hope this is helpful. Take immediate action. Again, this is when you already have that solid credit file. And if you want to get business funding.